# United States Court of Appeals
FOR THE EIGHTH CIRCUIT

___________ No. 96-2985

___________ Milton Hambrice, Inc., * * Plaintiff/Appellee, * * Appeal from the United States v. * District Court for the * Western District of Arkansas. State Farm Fire & Casualty * Company, * * Defendant/Appellant. *

___________ Submitted: April 14, 1997 Filed: May 23, 1997

___________ Before RICHARD S. ARNOLD, Chief Judge, FAGG and MURPHY, Circuit Judges.

___________ MURPHY, Circuit Judge.

St ate Farm Fire and Casualty Company (State Farm) appeals from a judgment awarding Mil ton Hambrice, Inc. compensatory and punitive damages for a claim of malicious prosecution. Hambrice, a contractor on a restaurant remodeling project, was sued by State Farm in a subrogatio n action after a fire extensively damaged the restaurant during th e remode ling. After State Farm later voluntarily dismissed its action , Hamb rice brought this case. A jury returned a verdict for Hambrice , awardi ng it $312,000 in compensatory damages and $7,500,000 in punitiv e damages. The district court denied State Farm’s post-trial motions, and judgment was entered in the amount of the verdic t. We reverse and remand.

### -2- In the summer of 1991 Hambrice was hired by Jack Daugherty, the owner and a State Farm insu red, to act as general contractor for the remodeling of a Western Sizzlin’ restaurant in Magnolia, Arkansas. Daugherty later reassumed some of the work, including roofing and electrical work, bu t Hambric e continued to assist Daugherty on it. Hambrice estimated th e amount of roofing material required and ordered those materials fo r Dau gherty, checked the roofer’s work on two occasions, and suggested t o Daugherty that the pe rimeter neon lighting be removed after noticing that it could be damaged by the shingle removal. When the lighting was removed , the wires which supplied electricity to the lights were left exposed and dangling along the side of the building.
Shortly before the fire in the restaurant occurred, customer s repo rted arcing and sparks from the exposed wires to two restauran t managers, Brian Daugherty (Jack’s son) and Leigh Bass. On both occasions, David Arrington, the restaurant’s regular electrician, was called to the
scene. Arrington told Bass that the sparking was a danger and that th e wires coul d be a fire hazard unless the circuit was left off. Powe r continued to be applied to the circuit every night, however, until the fir e
on September 18, 1991, which resulted in extensive damage to th e restaurant.

State Far m paid Daugherty’s claim and hired a fire investigator and
an electrical engineer to look into the cause of the fire. They determine d that hang ing wires from the removed neon lights were the cause, and th e fire investigator reported that “the neon tubes had been removed by Mr

. Milton Hambrice . . . and David Arrington, an electrical contractor” s o that new siding could be installed. A State Farm claims adjuster, Mik e Tucker, also interviewed Daugherty and his son, Brian. The Daughertys tol d the adjustor that Hambrice was the general contractor on the remodeling

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job and that an employee under Hambrice’s supervision had removed th e lights. In its investigation State Farm did not uncover the fact tha t Arri ngtonhad on two occasions warned Bass about the danger from th e exposed wires and tol d him to make sure that power was not applied to the cables.
After receiving this information, Tucker sent letters to Hambri ce and Arrington, which stated: “Our investigation indicates that you ar e responsib le for this damage and we are therefore looking to you fo r reimbursement.” When Hambrice received the letter, he called Tucker and denied responsibility for the fire. Arrington, who was also insured b y State Farm, called his agent and told him that h e had not removed the neon lights and had only b een called to the restaurant about sparking of other cables in a different location from the fire’s origin. Daugherty confirme d the facts in Arringto n’s statement, and State Farm did not pursue a claim against A rrington. State Farm then forwarded the case file to Mik e Huckabay, an attorney who had extensive experience handling subrogatio n claims , for recommendations on whether to file suit against Hambrice

. Huckabayresponded that he “strongly recommended” suing Hambrice, and he filed a complaint in February 1992, alleging that Hambrice’s negligenc e caused the fire at the restaurant.
State Farm and its attorneys remained unaware of Arrington’s wa rnings about the wires until May 1993, when a State Farm attorney interviewe d Bass. Bass told the attorney about Arrington’s visits and warnings, and Arrington was deposedand affirmed that he had made strong warnings about fire da nger from the exposed wires. After discovering this evidence , Hu ckabayrecommended that State Farm voluntarily dismiss the lawsui t because Daugherty would probably be found to be more than fifty percent at fault, thus

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precluding recovery under Arkansas comparative n egligence law. State Farm dismissed the suit without prejudice in June 1993.

Hambrice then sued State Farm for malicious prosecution, and afte r
a jury trial, judgment was entered against State Farm. On appeal, State Farma rgues that Hambrice did not establish its malicious prosecutio n claim, that the district court made errors in admitting evidence and in th e jury i nstructions, that Hambrice did not prove compensatory or punitiv e damages, and that excessive damages were awarded.

In order to establish malicious prosecution under Arkansas law, a plaintif f must show: (1) a proceeding brought or maintained by th e defendant against the plaintiff, (2) termination of the proceeding in favo r of the plaintiff, (3) absence of probable cause for the proceeding, (4 ) malice on the part of the defendant, and (5) damages. Harold McLaughlin Reliable Truck Brokers, Inc. v. Cox , 922 S.W.2d 327, 331 (Ark. 1996). A jur yverdict will be upheld if the evidence, viewed in the light mos t favorable to the prev ailing party, is sufficient for a reasonable jury to have found for that party. Feibelman v. WorthenNat’l Bank, N.A. , 20 F.3d 835, 837 (8th Cir. 1994).
State Farm argues that Hambrice did not show that it lacked probable
cause when it filed the subrogation suit. Probable cause is “based upon the existence of fact s or credible information” that would cause a person of ordinary caution t o believe the defendant is liable. Hollingsworth v. First Nat’l Bank & Tr ust Co. , 846 S.W.2d 176, 178 (Ark. 1993). The facts and circumstances surrounding the commencement and continuation of the sui t
are considered in determining whether probable cause existed. Cordes v. Outdoor Living Ctr., Inc. , 781 S.W.2d 31, 33 (Ark. 1989).

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Probabl e cause is a question of law only when “the facts relied upon t o create probable cause and the reasonable inferences to be drawn from the facts are undisputed.” Cox v. McLaughlin , 867 S.W.2d 460, 464 (Ark. 1993)

.

The und isputed evidence at trial shows that at the time State Far m sued Hambrice it had information from the fire i nvestigation that the fire had been caused by wires hanging from where neon lights had been removed and that Hambrice had been involved in removing the lights, was responsibl e for work which required the light removal, and had been working in the are a where the fire starte d. The fire investigator had reported that Hambrice had be en involved in removing the neon lights and that they had bee n removed to accommodate the installation of new siding on the restaurant, a job for which Hambr ice was responsible. In interviews with Tucker, the Daughertys had identified Hambrice as the general contractor responsible for the r emodeling of the restaurant and said that the neon lights wer e removed under Hambrice’s supervision. Based on this undisputed evidence concerning the facts State Farm had when deciding to sue Hambrice, it was reasonable for State Farm to believe that Hambri ce was responsible for the fire, and it therefore did not lack probable cause.
Hambrice argues that this evidence d oes not establish probable cause because if State Farm had conducted a more thorough investigation, it woul d have d iscovered evidence of Daugherty’s negligence and the fact tha t Hambrice was no longe r the general contractor for the remodeling project. Under Arkansas law, however, a plaintiff is not required to uncover al l facts relating to a claim before filing suit unl ess the plaintiff is aware of c ontradictory facts giving rise to a duty to investigate further

. Kansas & Texas Coal Co. v. Galloway , 74 S.W. 521, 525 (Ark. 1903).

### -6- In t his case, there do not appear to be any facts giving rise to a duty to investigate further, but even if there were, the additiona l evidence which Hambrice claims State Farm should have uncovered does not necessarily negate St ate Farm’s evidence of Hambrice’s negligence. State Farm had evidence indicating that Hambrice was directly responsible for th e fire, including evidence that Hambrice was working in the area where the fire started and was involved in removing the lights, and it did not need to rely on a theory that Hambrice was liable as a general contractor

. More over, uncovering evidence of Daugherty’s negligence would not hav e viti ated State Farm’s probable cause concerning Hambrice’s negligence

. State Farmcould still have had a submissible case in the subrogatio n action since under Arkansas law issues of comparative negligence are for the jury to decide. Lockett v. International Paper Co. , 871 F.2d 82, 84 (8th Cir. 1989). Hambrice thus did not show that State Farm lacke d probable cause to sue him for subrogation.
Even if p robable cause had been lacking, Hambrice was also required to make a separate showing of malice in order to establish his malicious prosecution claim. Arkansas law defines malice as “any improper o r sinister motive for instituting the suit.” Hollingsworth , 846 S.W.2d at 178 (quoting Cordes , 781 S.W.2d at 33). Malice can sometimes be inferred from a lack of probab le cause when the surrounding circumstances indicate a sinister motive. Cordes , 781 S.W.2d at 34; se e, e.g. , Farm Serv. Coop., Inc. v. Goshen Farms, Inc. , 590 S.W.2d 861, 866 (Ark. 1979) (malice can be inferr ed when a company repeatedly sues another while lacking probabl e cause). Ma lice does not flow as a legal presumption from a lack o f probable cause, however. Cordes , 781 S.W.2d at 33; Rogers v. General Elec

. Co. , 341 F. Supp. 971 , 976 (W.D. Ark. 1972) (consider all facts disclosed in determining

### It is therefore unnecessary to discuss the arguments raise d 1 

### by S tate Farm related to the jury instructions, evidentiar y rulings, and damages.
-7- wheth er malice can be inferred from a lack of probable cause) (quotin g Kable v. Clark , 204 S.W. 748, 750 (Ark. 1918)).

Hambrice argues there is an inference of malice because of the lack of probable cause and State Farm's practice of pursuing subrogation claims

. Undisputed evidence a t trial showed that State Farm had credible facts on which i t based its decision to sue Hambrice for subrogation, however

. State Farm consulted a well-respected lawyer who had extensive experience in subrogation litiga tion, presented to him the facts it had uncovered in its investigation, and only sued after the lawye r strongly recommended it. Moreover, once State Farm discovered evidence of Daugherty’s negligence, it di smissed its action, even though under Arkansas law its case coul d probably still have been submitted to a jury. See Lockett , 871 F.2d at 84

. These facts do not indicate any improper motive in bringing or pursuing th e subrogation claim, and Hambrice did not make a sufficient showing of malic e to withstand a motion for judgment as a matter of law.

Si nce Hambrice did not establish the elements of maliciou s prosecution, State Farm was entitled to judgment as a matter of law. The 1 judgment of the distr ict court is reversed, and the case is remanded with instructions to enter judgment in favor of State Farm.

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A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.